EconPapers    
Economics at your fingertips  
 

Investment, R&D and Financial Constraints in Britain and Germany

Stephen Bond, Dietmar Harhoff () and John van Reenen ()

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: This paper tests for the importance of cash flow on investment in fixed capital and R&D using firm-level panel data in two countries between 1985 and 1994. For German firms, cash flow is not informative in simple econometric models of fixed investment or R&D. In identical specifications for British firms, cash flow is informative about investment, although not about the level of R&D spending conditional on the R&D participation decision. In the UK, we also find that investment is less sensitive to cash flow for R&Dperforming firms, and that cash flow predicts whether firms perform R&D or not. We confirm that these differences do not simply reflect a greater role for current cash flow in forecasting future sales. These results suggest that financial constraints are more significant in Britain, that they affect the decision to engage in R&D rather than the level of R&D spending by participants, and that consequently the British firms that do engage in R&D are a self-selected group where financing constraints tend to be less binding.

Keywords: Investment; R&D; cash flow; financial constraints; panel data (search for similar items in EconPapers)
JEL-codes: L13 O31 C25 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino
Date: 2003-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61) Track citations by RSS feed

Downloads: (external link)
http://cep.lse.ac.uk/pubs/download/dp0595.pdf (application/pdf)

Related works:
Chapter: Investment, R&D and Financial Constraints in Britain and Germany (2010)
Journal Article: Investment, R&D and Financial Constraints in Britain and Germany (2005) Downloads
Working Paper: Investment, R&D and financial constraints in Britain and Germany (2003) Downloads
Working Paper: Investment, R&D and financial constraints in Britain and Germany (1999) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0595

Access Statistics for this paper

More papers in CEP Discussion Papers from Centre for Economic Performance, LSE
Bibliographic data for series maintained by ().

 
Page updated 2020-01-17
Handle: RePEc:cep:cepdps:dp0595